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Euro fans are still euphoric

August 21, 2020

August 21, 2020

Dollar is like anyone elseDmitri Demidenko

Is it worth marching against the crowd when the crowd is insane?

Love and hate are just one step apart. The greenback had been extremely popular for almost 2.5 years, but became of no use this summer. The ECB, the Bank of England, the Bank of Japan and the SNB said that they would provide US dollar liquidity auctions only once a week, instead of three times, because of the low demand.

Goldman Sachs says that the USD lost its status of the main reserve currency; speculators continue increasing net shorts in the USD index, and European call options at the strike price of $1.28 became popular in the options market. Is the dollar no longer idolized? Well, those who never loved are 1000 times poorer than those who lost their love.

![LiteForex: Euro fans are still euphoric][1]

Everything is growing against the dollar: the euro, which must be concerned about the expansion of European QE, the British pound, which is afraid of no-deal Brexit, and the Australian pound, which has to deal with the closed borders of the infected Victoria state.  Investors may choose no matter which currency and they won’t lose.

First, the USD index fell on disappointment because the dollar smile theory was put to the torch. According to that theory, the dollar should have grown amidst a higher demand for safe haven assets, have fallen on the Fed’s large-scale monetary expansion, and finally have grown again amidst the US GDP’s outperformance.

Then, everyone got euphoric about the euro as they suddenly believed that a deeper economic hole wouldn’t prevent the EU economy from recovering faster than the US. Bulls in [EUR/USD][2] have the united EU while bears have to retreat as the Democrats and the Republicans can’t agree on fiscal stimulus.

![LiteForex: Euro fans are still euphoric][3]

The upsurge of the US’and the eurozone’s economies from April’s bottoms has actually little in common with a true rally. People are spending money provided under the economic relief programs. The companies making the most profits are those who sell goods on the Internet or via mobile applications, i.e. technological companies. It’s the rally of this sector’s stock that allowed [S&P 500][4] to update its historic highs and presumed that Wall Street thinks about the future while Main Street lives in the present. To me, the US stock indexes’ impressive rise amidst the economy that is only trying to recover looks like a party that we’ll be ashamed of some day. Still, we eagerly keep in memory those fabulous evenings that we are ashamed of.

At a closer look, [EUR/USD][2]’s rally isn’t based on the economic growth divergence. It’s based on the difference in the epidemiological situations that defines GDP’ future growth rate. At the same time, the investors that are trying to back-door their way to the North sometimes behave like madmen. They totally ignore the possibility of another Covid wave in Europe. How should we feel about this crowd? Just remember: getting out of a mental hospital isn’t equal to recovering. It just means you became like anyone else.

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Price chart of EURUSD in real time mode

![Dollar is like anyone else][7]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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  2. my.liteforex.com/trading/chart?symbol=EURUSD&returnUrl=true
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